Taxation (Annual Rates and Budget Measures) Bill

Hon PETER DUNNE (Minister of Revenue) Link to this

I move, That the Taxation (Annual Rates and Budget Measures) Bill be now read a first time. This bill focuses on two main important areas for New Zealand at the present time: building faster economic growth around higher national savings, and setting New Zealand back on the road to surplus in the repayment of debt. As the Budget outlined, the Government will continue to protect the most vulnerable New Zealanders by increasing funding for health and education and maintaining income support programmes. But to achieve those objectives, the Government needs to reduce its spending and its level of debt.

This bill addresses two large programmes administered through the tax system, Working for Families and KiwiSaver, to maintain targeted support while eliminating unsustainable spending. The Government recognises that some New Zealand families need assistance. This bill aims to provide those people, on a continuing basis, with the support they really need, while remaining fiscally prudent. The bill achieves that by increasing the abatement rate by 1.25c at every inflation adjustment from 1 April 2012 until it reaches 25c in the dollar, by lowering the current abatement threshold of $36,827 to $36,350 on 1 April 2012 and then by reducing it by $450 at every subsequent inflation adjustment round until it reaches $35,000, and by removing the inflation adjustment for the family tax credit amounts for children aged 16 and over from 1 April 2012 until the amounts for younger children catch up.

Collectively, these changes will help to ensure that limited resources are directed to where they are most needed. The tax credits will begin reducing earlier on the income scale and they will reduce faster. That will mean that a number of families who are higher up the Working for Families income scale will no longer qualify or will receive lower amounts.

There has been much public discussion about possible changes to KiwiSaver. I assure the House that the Government is committed to improving national savings. KiwiSaver has been extremely good at encouraging saving habits amongst New Zealanders, but like any taxpayer-funded programme, the spending associated with it needs to be prudent. Currently, over $1 billion a year of what goes into people’s KiwiSaver accounts comes from the Government through subsidies and tax breaks. Over time the Government has put in nearly half the money that has built up in KiwiSaver accounts. But to continue to be an efficient part of the savings landscape, KiwiSaver needs to be affordable as a retirement savings scheme for its members, for employers, and for taxpayers.

To that end the Government is proposing changes that will ensure that the desired outcome is still achieved and that will ensure the future of KiwiSaver by making the scheme more affordable while continuing to encourage savings. The main changes to KiwiSaver are therefore that all employer contributions to employees’ KiwiSaver accounts will be subject to employer superannuation contribution tax—ESCT—from 1 April 2012. Employer superannuation contribution tax will be applied at a rate equivalent to an employee’s marginal tax rate, meaning that it will have a greater impact on higher-income earners. The member tax credit is to be halved for the next MTC year—that is, the member tax credit year that ends on 30 June 2012. The Government will now contribute 50c for each dollar contributed by the individual KiwiSaver member, up to a maximum of $521.43 per year, which is equivalent to $10 per week. The minimum employee contribution will rise from 2 to 3 percent for all members—new and existing—from 1 April 2013. The default contribution rate for new employees who do not select a rate will also be 3 percent from that date. Compulsory employer contributions will rise from 2 percent to 3 percent from 1 April 2013.

Of all these changes, this bill contains the member tax credit and the employer superannuation contribution tax changes. The changes to employee and employer contribution rates will be included in a bill to be introduced later this year.

This bill also sets the annual rates of income tax for the 2011 tax year. These are the main features of this bill. When taken together they help ensure that Government spending is both prudent and focused on areas of real need. This bill continues the focus on providing for a fair and equitable tax system for all, supports national savings, and encourages economic growth. It is therefore with great pleasure that I commend this bill to the House.

Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this

The Government touted this Budget as the “Zero Budget”. The Government was right. It is a “Zero Budget” because it is a zero out of 10. It has zero ideas, zero leadership, and a zero chance of making New Zealanders better off, either in the short term or in the longer term.

The Taxation (Annual Rates and Budget Measures) Bill contains some of the worst parts of this Budget. It is a great pleasure that we will be addressing it right up front in the House in urgency. I thank the Government for the opportunity to do so.

There is absolutely no doubt that the foundation upon which this bill rests is precarious. It is precarious because this Budget is a bridge to nowhere, and the road is paved with fudges and double-talk. It is paved with, for example, a broken promise not to sell State-owned enterprises and other assets, which provide $7 billion of the baseline in this Budget. It is paved with a $1 billion unprecedented fudge that Roger Douglas would never have signed off as Minister of Finance. The unspecified cuts are not even allocated to an individual department. It is a $330 million a year whim, out there somewhere in the cloud, because the Government does not want people to know before the election where the cuts will come from.

The road is paved with a $4 billion difference between the revenue estimates from the Inland Revenue Department and those from Treasury. Guess whose numbers were higher! Treasury’s. Guess which numbers the Government is working off! The higher ones. The Inland Revenue Department does not believe the growth numbers in this Budget. It does not believe them. There is no reason why it should. These are rosy glow growth numbers. When one strips away the Christchurch earthquake and the Rugby World Cup sugar rush, the sad truth is that at the end of the 4-year period we are still left with growth of only 2.2 percent. That is below the previous long-term average of 2.5 percent. Even then, the Inland Revenue Department does not believe that the money will actually come in. That is why its numbers are $4 billion below those of the Crown.

The road is also paved with a $650 million a year theft from the personal pockets of public servants, partly because their departments have been forced to pay their KiwiSaver contributions out of baselines. But it does not stop there. This Budget raids the superannuation scheme for public servants, as well. It is iniquitous. It is $650 million a year, and that is not even the fine print.

The road is also paved with the fudge that the $5 billion Canterbury Earthquake Recovery Fund will not be paid for by the Crown; it will be sucked from the public through these new Canterbury reconstruction bonds. They are much less secure than if the Crown was putting its balance sheet fully behind Canterbury’s recovery. The rhetoric is not matched by the reality. It is yet another fudge and yet another zero out of 10 for this Budget.

Most of all, sadly, this Budget is paved with the sacrifices of middle New Zealand families and working Kiwis, who will have their KiwiSaver slashed and their Working for Families abated more rapidly. What does that mean in real people’s language? It means 20 bucks a week less for a family with two KiwiSavers—$10 a week less each—because the member tax credit is cut in half. That is if they are contributing 2 percent. The bill changes the default up to 3 percent. Well, is that not heroic of this Government? It has not even reversed its reversal; it has half reversed its reversal. The Government has half reversed the reversal it made last year when it took the contribution from 4 percent to 2 percent. This year it has gone back up from 2 percent to 3 percent. Wow! That is leadership!

CRAIG FOSS (National—Tukituki) Link to this

I thank the previous speaker, David Cunliffe, for thanking the Government for going into urgency on these bills. His other colleagues may want to note that as they go through the next few hours on this Taxation (Annual Rates and Budget Measures) Bill.

Before I get into it, I must congratulate our Minister of Finance, Mr Bill English, on his third Budget under this Government, and what a Budget for our time. What a prudent, courageous, and brave Budget for our time. Tempting as it might be in an election year, and as the other party is wont to do, to borrow to spend up, the courage, the fortitude, and the prudence shown by Mr English in this, his third Budget, which builds on the previous two, are truly to be admired.

I must also note the speech of our Prime Minister, our leader, John Key. What a legendary speech, and what legendary delivery compared with that of the Leader of the Opposition, Mr Phil Goff. I thought Mr Phil Goff was doing some planking or something in the middle of Parliament. He was flat. He did not seem to be doing anything. He was looking around. I do not know what was going on. When we compare him with the honourable Prime Minister, we see it was like watching Richie McCaw play the Golden Oldies team, or something like that. The floor was absolutely wiped with Mr Goff. He resorted to, I think, his 2007-08 speeches. He lost his way very, very early on, and that was obvious from looking at his comrades around the House.

Regarding the Taxation (Annual Rates and Budget Measures) Bill, I acknowledge the Hon Peter Dunne for what he has pulled together here in bringing this bill to the House. I also acknowledge the key points he noted, particularly that this bill codifies and reconfirms the current tax rates, PAYE rates, etc. Yes, it makes changes to KiwiSaver and, yes, it makes some changes to Working for Families, but the core Budget is a prudent Budget for our time and these are prudent measures for our time. If we go beyond the 40-something members on the other side, if we go out of this Chamber and ask members of the public whether we should borrow money from overseas to put into KiwiSaver accounts—whether that is a good idea—I think all of them would say absolutely not. That is what the other side is promoting.

If that were to continue, KiwiSaver itself would be in danger. Members on the other side constantly go on about one side of the balance sheet. The bit those members often forget is that their Government relied on short-term, ongoing, constant growth in revenue, which was related to the state of the economy—PAYE and GST—but they put in place long-term, committed index spending, such as interest-free student loans, Working for Families, and things in and around KiwiSaver. Essentially, in a financial sense, they borrowed short and lent long, and this Government had to come in and tidy that up, because those members got themselves and this country into huge, huge trouble.

This Budget and this bill before us pass four tests. This Budget builds an export economy. It builds the platform for an export economy. I recall that the previous Government’s version of that was to have something called Export Year in 2008, and New Zealand promptly went into recession one year before the rest of the world. This Budget and, of course, this bill help grow savings and bring in capital efficiency. Those members seem to have missed the new investment statement that is before them to help Governments—not only this one but also future Governments—make efficient, fair allocations of scarce capital decisions for New Zealand as we decide what to build, be it infrastructure, tax, or whatever. This Budget and this bill assure and bring in deficit reduction. This Budget passes the third test that someone put up for Budgets. It does, because right there we are bringing down the deficit and we are coming back into surplus one whole year early. Members might recall that when this Government came in, the update to the incoming Government said that this country was heading to debt being about 60 percent of GDP. Right now we are at 28.9 percent. That is not too bad, so I think this Budget passes that test as well. Does it pass the test of helping families deal with living costs? Of course it does. As I said earlier, it confirms existing tax rates. New Zealanders’ after-tax incomes, after only 3 years of this Government, have gone up 6 percent—after-tax incomes—enhancing their affordability to live and to purchase a house, versus, in the 9 years of the previous Government, after-tax real incomes going up only 3 percent.

Therefore, this Budget does pass all four of the tests that someone put up as to whether a Budget is successful. This bill confirms part of that Budget, and I look forward to its further stages.

Hon DAVID PARKER (Labour) Link to this

This Budget was written against the context of the Prime Minister and the Minister of Finance having repeatedly said that New Zealand has a problem with total New Zealand indebtedness, rather then Government indebtedness, and against the background of them having said that we needed to restructure the economy in order to have a fundamental shift in the economy. It fails. The Budget document, on page 70, describes the net international investment position—that is, New Zealand’s net debt as a percentage of GDP. The forecast for the year ended 2011 is 78.6 percent of GDP, having gone down a little over the last year, and for every year hereafter in the projections New Zealand’s net international position gets worse—that is, New Zealand becomes more indebted as a nation, year after year after year, not just in nominal terms but also as a percentage of GDP. It goes up from 78.6 percent forecast for the 2011 year to 85.3 percent forecast in the year ended 2015. That is an indictment on the Government’s policies.

The other really bad figure in this is the current account deficit. The current deficit pops into surplus of 0.5 percent this year, in part because of the moneys coming to New Zealand from reinsurance overseas. Every year after this we have a growing current account deficit as New Zealand gets poorer year by year, which is reflected in that debt position I just referred to. The current account deficit forecast for 2012 is 4.1 percent, rising every year to 6.9 percent in the year 2015. The Government can only pretend it has maintained any one of its pre-election promises. Remember it was going to close the wage gap with Australia—fail. It was going to lead us to a brighter future—fail. It was going to cause a step change in the economy—fail. This Budget lays bare the failure of the Government’s economic policy.

We have heard from other contributions that National will go to the electorate for a mandate for its changes, including the sale of State-owned enterprises and cuts to the likes of KiwiSaver tax credits, yet it counts every one of them in the Budget. Every one of those measures is counted in the Budget, yet this year we have a $16.7 billion cash deficit and we have deficits going into the future. Indeed, those debt figures I quoted for the country are after the sale of the energy State-owned enterprise interests and Air New Zealand interests, so those figures I have as to total net debt are after the family silver has been sold.

David Cunliffe covered some of the effective tax increases that are in this Budget for middle-income New Zealanders as a consequence of changes to KiwiSaver. It is worth noting that the effect of this Budget, and of the Taxation (Annual Rates and Budget Measures) Bill that we are now debating, is to increase the tax burden of middle-income New Zealanders as a consequence of those changes. This same bill reinforces the cuts that were made to income tax rates by stating them again for the forthcoming year, for the highest income groups. So the 10 percent of the population that got 42 percent of the income tax cuts in last year’s Budget keeps them. Middle-income people, who are on lower incomes than them, get their KiwiSaver tax credits cut. Is that fair? No. Does it cause the economy to grow? No. We have had a much-vaunted figure of 4-point-something percent as being the growth outlook for the first year in the Government’s forecast. That includes approximately 1.5 percent of money coming into the economy, mainly from overseas, as a consequence of the Christchurch earthquake, and the insurance money being paid out of New Zealand coffers that is being spent in Christchurch after the earthquake. If that is cut out, the underlying growth rate for New Zealand is a little over 2 percent.

What New Zealand needs now is a credible plan to grow the economy. The Government has had 3 years to do it. Its outlook is very poor, as shown by the fact that New Zealand’s net debt position in the world gets worse. Even to get to that position, the Government has included asset sales. National sold the family silver once; it cannot sell it again. It has broken its promises to New Zealand in many different ways. The figures I would have reinforced to listeners are not those debt figures that the Minister of Finance has been repeatedly emphasising as being important. The net international debt position of New Zealand as a percentage of GDP is a proxy for whether we are getting richer or poorer as a country, and that number gets worse. Every year from here on in we go backwards. We heard the Prime Minister say in his speech that interest rates are going to be better than they would otherwise be. His own Budget, on page 70, shows the 90-day bill rate going up from 3 percent to 5 percent over the forecast period—a 3 percent to 5 percent increase in interest rates over the forecast period. So that is not quite what the Prime Minister would have people believe, either.

The other point that I find worrisome in this Budget relates to the predictions as to tax revenue. The Inland Revenue Department and Treasury cannot agree as to how much tax revenue will be collected. I will read out what it states: “Both sets of tax forecasts were based on the Treasury’s economic forecasts.” So it is not related to economic forecasts, but it states: “Using slightly different assumptions and forecasting models, Inland Revenue has produced a set of tax forecasts that are much lower than the Treasury’s.”—not just lower, but much lower than Treasury’s—“In this Update, the total difference between the tax forecasts across the five … years … is nearly $4 billion, a larger difference than is usually the case … The bulk [of this is in] corporate tax.” That is what it states. What does the Government do? Does it take the prudent course and use the lower of those figures, because it has got it on the wrong side in every one of its Budgets so far? No. Does it average the two, and take a mid-range figure? No.

The Government is taking the irresponsible course in the face of what is already a $16.7 billion deficit in order to protect those income tax cuts of last year, 42 percent of which went to the top 10 percent. It takes the irresponsible course of taking the highest figure, because that suits its cause. It has taken the Treasury forecast, it has ignored the Inland Revenue Department’s forecast, and it has not even taken the mid-point. As a consequence, even by this Budget document, it is possible that these numbers over that 5-year period are $4 billion out. It is not a trifling amount of money.

I will say something about what is heading towards the education sector as a consequence of a change in this Budget. At the moment for teachers in KiwiSaver, the employer contribution matches the teacher contribution and it is paid out of Government revenue. It comes out of Government revenue via the Vote State Services. This Budget changes that and states, effectively, that schools have to pay for that themselves. Effectively, there is a hole in the budget of every school, because they have teachers who are entitled to be in KiwiSaver whose matching contribution from their employers will go up from 2 percent to 3 percent next year—with the Government having reversed the change in employer contribution from 4 percent to 2 percent last year—but the school now has to pay that 3 percent contribution to the teachers’ superannuation. Where is that coming from? How does the magic work in the schools’ budget? I cannot work that one out, and I do not think that schools will be able to, either.

I also ask, with regard to this pretence that KiwiSaver contributions are getting better by going from 2 percent to 3 percent, whether people realise that the 3 percent that is coming from employers will have tax deducted from it before it hits their accounts. Tax is deducted at the employee’s tax rate before it hits their KiwiSaver account, presumably at the cost of a future wage increase for the employee—and I am not necessarily criticising all of that, as some of it is unavoidable; I am not saying that the employer can magic it—so the tax payment that will now be deducted from that 3 percent employer contribution effectively comes out of the employee’s superannuation account. Not only are teachers being asked to sacrifice some of their wages, but also they are paying the tax on that 3 percent contribution.

This Budget fails against the test that the Government set for itself of leaving the economy substantially changed. That was its promise, yet we see that the growth forecast is unchanged. New Zealand still wanders along at a pretty modest rate and New Zealanders still have to wait yet again for the promised golden day just round the corner that never seems to arrive under this Government.

Dr RUSSEL NORMAN (Co-Leader—Green) Link to this

I rise to speak to the Taxation (Annual Rates and Budget Measures) Bill, which is part of the Government’s Budget that was introduced this afternoon. The framework for the Government’s Budget was what I have called “borrow, cut, and sell”. The Government has increased borrowings very significantly; it has cut spending on programmes that ordinary New Zealanders like and benefit from, like Working for Families and KiwiSaver; and it is proposing to privatise Government assets in order to get some money from that privatisation to pay for future capital expenditure. It is a “borrow, cut, and sell” Budget. A “borrow, cut, and sell” Budget is not exactly an inspirational Budget, and when we look at the numbers in the economic forecast, we see that it shows how much of a failure this Budget will be.

The previous speaker, Mr Parker, referred to table 1.2 in the Economic and Fiscal Update forecasts, which has the long-term implications of this Budget and, no doubt, others. For those of us who are concerned about the imbalances in the New Zealand economy—clearly the Government is not—it is notable that the 2015 forecast has a current account balance of minus 6.9 percent of GDP. Minus $16.8 billion is the current account deficit forecast for 2015. If the Government has criticised the performance of the economy under previous Governments by saying that it was a borrowing-fuelled consumption boom, which was the critique the Government has made, then it is not changing that. If that is the Government’s critique of the position on how the economy was previously managed, then further down the track our net international investment position—and that is the difference between what we owe the world and what the world owes us—is still minus 85 percent of GDP in 2015, under the magical, transformational Budget that the Government has introduced.

If the Government’s critique has been that there was a debt-fuelled consumption boom—and we see that there was considerable truth to that when we look at what happened in the housing sector—its changes will not do anything about New Zealand’s current account deficit or its net international investment position. The kinds of changes that National is bringing in will take us backwards.

One of the problems we have in New Zealand is our savings record, and the Government is proposing to reduce the incentive to save. The Government is proposing to take $2.6 billion away from KiwiSaver contributions. This was part of the incentive for people to save. The people who are members of KiwiSaver—some of us are members of KiwiSaver—will have the contribution from the Government cut, and that will happen to all KiwiSaver accounts across the country. People will lose $10 a week that previously went into the KiwiSaver account, which was an incentive to encourage people to save.

The Government has argued that there is no point in borrowing from overseas in order to put money into KiwiSaver accounts; it has asked what the point is of borrowing just to put into savings. The point is that according to Treasury, we get 40 percent additional savings as a result of KiwiSaver—that is, it has a multiplier effect. The incentives that are in KiwiSaver produce a multiplier effect in terms of private savings.

Hon Sir ROGER DOUGLAS (ACT) Link to this

This Budget was one that could be described as fiddling while Rome burns. In many ways, I believe that although it may not do much harm it will cause a degree of uncertainty, which we could do without. There is a need, I think, for some comprehensive change, and we certainly have not got it in this Budget. As a result there is not much to this piece of legislation, and we may as well pass it and get on with it.

One point I do want to raise is I believe that the assumptions that lie behind this Budget are in some ways quite heroic. They might prove to be accurate, and I am sure that Treasury or whoever advises the Government has done its best. I want to raise three or four points. Since 2008 nominal GDP has risen by $16 billion, from $183 billion to an estimated $199 billion. In the same period, core Crown expenditure has risen by $16 billion, from $56 billion to an estimated $72 billion. In other words, the Government has taken to itself the entire increase in nominal GDP. Nominal GDP went up by $16 billion. Government expenditure went up by $16 billion. What did the Government leave for the private sector? Nothing. The Government crowded the private sector out, and no wonder the country is in some difficulty.

I ask the public what they get from that massive increase in expenditure. For a family of four, that increase in Government expenditure is $16,000 a year. I ask the average family out there what they get for that $300 a week extra the Government is spending on their behalf—so-called. Do they feel better off? The families I meet certainly do not feel any better off. Can they buy more groceries as a result of the Government spending an extra $300 a week on their behalf? I do not think so. Can they take their kids to the movie theatre? No, I do not think so. There is no free lunch.

So what do we make of it? Let us have a look at one point, and this comes back to my reference to heroic assumptions. The estimates of core Crown expenditure by the Government in recent Budgets have systemically underestimated core Crown expenditure by, on average, 6.83 percent a year. What leads us to believe that this year the Government has got it right? In previous years we have seen a massive increase. The Government is talking about it being flat from now on. If we take the case that this year core Crown expenditure increases by 6.83 percent, which is the average over and above estimates of recent years, another $4 billion or thereabouts would be added to the Budget deficit. Also, in terms of GDP growth, recent Budgets have overestimated GDP growth by 1.8 percentage points over the last 6 years. Again, what assurance do we have that the figures, which are quite high in terms of GDP growth, wage growth, etc., are any more accurate than they have been in recent years? Core Crown expenditure, as I said, has hit an all-time high as a percentage of GDP; it has gone up by about 5 percent in 3 years, or by $10.5 billion. I think this House needs to start to question itself. We have increased Government expenditure in the last 3 years, in nominal terms, by $16 billion, which is $4,000 a person and $16,000 per family of four. So $16 billion is the entire increase in nominal GDP. Nominal GDP is up $16 billion and Government expenditure is up $16 billion. Nothing—nothing, not one cent—is left for the private sector, and we wonder why we are in difficulty. I want to know whether the estimates that the Government has made in this Budget will prove any more accurate than the estimates that we have had in the last four or five Budgets. The estimates have been way out in terms of expenditure. Expenditure has always been higher than estimated and GDP growth has been lower.

The final point I want to make is about the Labour Party and the Greens. Although I am critical of National in terms of its estimates, I really wonder about the Labour Party and its attack on high-income earners. That does surprise me. It is over the top. The Labour Party has this strong focus on distributive questions—that is, it tends to think that to help the poor we must hurt the rich. We have heard it in speech after speech from the Labour Party and from the Greens. They are reluctant to face the fact that in New Zealand’s current situation it is almost impossible to help the poor without also helping a section of the rich—those who invest in productive areas. If we do not help that group, we will certainly not be able to help those on lower incomes. If those old colleagues of mine were not so one-eyed, they could, just possibly, construct something really radical—a radical scheme that might just be redistributive and growth orientated. I do not hold my breath. The fact is that in the way they operate at the present time, they are simply unable to formulate sensible attitudes towards any of the basic social issues we face, which are invariably tied to economic ones. Although I know that a lot of those people are highly intelligent and knowledgable on all sorts of things—that is, those things one can put on a lapel badge—they are often intellectually, at least, lopsided.

Hon TARIANA TURIA (Co-Leader—Māori Party) Link to this

Tēnā koe, Mr Assistant Speaker Roy. Tēnā tatou e te Whare. The Taxation (Annual Rates and Budget Measures) Bill gives effect to tax reforms announced in Budget 2011 to reduce the fiscal costs of the KiwiSaver and Working for Families tax credits programmes. This Budget was never going to be a walk in the park. The astronomical fiscal impacts of the 6,000 earthquakes that have cumulatively taken their toll on Canterbury were unprecedented, and certainly not anticipated. Then, of course, there have been blizzards, droughts, leaky homes, finance company collapses, and the AMI and South Canterbury Finance sagas, to name but a few.

The damage caused by the two earthquakes has been estimated as costing around $15 billion, which is about 8 percent of GDP. At even the most minimal budgeting, we require $5.5 billion for expenditure such as temporary housing, repairing roads, and restoring infrastructure, with another $3.3 billion to recognise the costs of both the Earthquake Commission and the Accident Compensation Corporation. So something had to give.

I acknowledge that for most New Zealanders there has been an incredible sense of generosity of spirit that recognises that there was simply no room in this year’s Budget for discretionary spending. Of course, there are always those looking for a soapbox from which to project their particular brand of attack. But actually the biggest challenge that faces any of us is how to reprioritise in order to ensure the best value for the limited resources that we have.

This concept is particularly well known to tangata w’enua communities. The practice of kaitiakitanga entails an active exercise of responsibility in a manner beneficial to resources and the welfare of the people. Kaitiakitanga is synonymous with the notion of being prudent. The practice of rāhui illustrates how one might have to exercise restraint in order to ensure sustainable management and growth of the economy so as to provide a stable and secure environment for future generations. When we look at both of the key tax reforms articulated in this bill, they remind us of the behaviours and attitudes of our tūpuna in tightening the belt, curbing excesses, and living within our means.

The objective of the changes in the Working for Families scheme is to reduce the fiscal costs of the scheme while protecting amounts of tax credits for lower-income earners and minimising the effects on work incentives. As a result of alignments that will be made as a result of Budget 2011, the scheme will be much better targeted to vulnerable families. A number of the families who are earning higher up the income scale will receive a little less than they currently do. The worst-case scenario for them is that they may no longer qualify.

Ten weeks ago the Māori Party issued a challenge to the Government, asking for support from higher-income New Zealanders to exercise what we might call manaakitanga, or good old-fashioned charity beginning at home. In our statement entitled “Time for those who ‘have’ to help those who ‘have not’ ” we asked the Government to promote generosity by raising taxes for those on incomes over $70,000. This Taxation (Annual Rates and Budget Measures) Bill is an honourable response to that tono. It better targets Working for Families at lower-income families, who need more help. It will be less generous to higher-income families.

Take as an example the case of Amohia and Hemi on a combined family income of $40,000 per year, with three tamariki. Currently they receive $280 a week in Working for Families tax credit. From 1 April next year this will go up by $4 a week, which is $16 a month. Down the road lives Sonya, on a salary of $90,000, with two children. Her income level is right near the top, so she currently receives only $18 a week from Working for Families. After the changes she will receive only $7 a week, which is $28 a month. When we talk about impacts like this in single dollar terms it is always hard to understand just how effective the changes can be. But the important point is that the changes will be made gradually, in a way that minimises the impact on these families.

I think it is really important that each of us starts to cultivate the art of financial literacy in our homes, so that we truly understand the state of the nation and the different levers that impact on our well-being. I have heard a lot of ranting about how the 2 percent lift in GST has brought the country to its knees. Yet missing from that same kōrero is a flabbergasting statistic that under the term of Labour, electricity prices over the 9 years rose 72 percent. That is akin to a jump of 8 percent each year. Although the prices have risen 9.5 percent since this Government took office, the rates of rise have halved to under 4 percent a year. But it is still a hefty rise from one decade to the next. Added to that, the price of petrol has risen by 17.1 percent. Our heavy reliance on oil demands that we look seriously at establishing alternative renewable sources of energy—a cause that the Māori Party and many hapū, iwi, and marae are actively considering.

The other raft of changes in this taxation bill is to do with KiwiSaver. The changes alter the balance of contributions to KiwiSaver accounts away from public financing and towards private saving. This is another approach that the Māori Party has supported in terms of reducing how much money the Government borrows from overseas to put into KiwiSaver. Our concerns around KiwiSaver are that although savers and employers will have to pay more to make the scheme more affordable over the long term, the Government is lessening its commitment. This may have a backlash effect in terms of discouraging the other two partners in the scheme. In other words, we are mindful that reductions in incentives may end up undermining the confidence in the scheme.

If I take into account what the Hon David Cunliffe said, one would think that the majority of KiwiSavers are Māori families. I think that if we were to look into that particular issue we may find that they are in the minority in terms of contributing to the scheme. They do not earn the $70,000 that the member talked about, and not many of them earn the $40,000 that he talked about either.

The other key concern that we have put forward is whether any increase in the minimum payment by savers could prove unaffordable for lower and middle income constituents, who are already struggling to cope with rising costs. That is why we opposed the introduction of Labour’s KiwiSaver scheme when the individual contribution was 4 percent, as we believed it did not do enough for the less well-off and particularly for the w’ānau of the working poor and the families of beneficiaries.

We certainly are of the view that those people on lower incomes should carry less burden proportionately than those who are on higher incomes. We will be concerned if any disincentive to save, because of increased payments, causes them either to not enter the scheme or to take contribution holidays. But also we do not want to overemphasise KiwiSaver. We all need to return to the old ways of the practice of good saving, and there are many other methods of encouraging this to happen. We have been very supportive of the KiwiSaver initiatives, such as the Whai Rawa programme. This scheme is designed to provide a base level of savings for all registered Ngāi Tahu members, as well as supporting and incentivising a culture of savings and asset building. From all accounts we understand it has been highly successful.

The Taxation (Annual Rates and Budget Measures) Bill provides Parliament with the opportunity to make alterations to the generosity of those schemes, particularly Working for Families, where it reaches into very high income levels, where these people have enjoyed reasonably good tax cuts. We support the first reading of the Taxation (Annual Rates and Budget Measures) Bill.

AMY ADAMS (National—Selwyn) Link to this

I am delighted to stand here on Budget day and take a call in the first reading of the Taxation (Annual Rates and Budget Measures) Bill, which is the bill that delivers the key revenue changes that make up this year’s Budget. In 2008 Michael Cullen stood in this House and told New Zealand that after the best global economic times in living memory, the Labour Government had been so incompetent, such a poor economic manager, and so financially illiterate that he was deserting the ship, leaving a decade of deficit as his legacy.

Hon CLAYTON COSGROVE (Labour—Waimakariri) Link to this

I will start off by addressing, for the record, some of the historical inaccuracies from the member who spoke previously, and who made accusations against the last Government. It is important to say this in the overall context of the Budget, because it was Bill English, of course, who, on taking office, acknowledged that the reason we could get through this recession was—

DAVID BENNETT (National—Hamilton East) Link to this

The last speaker from Labour, Clayton Cosgrove, tried to make out that the Labour generation of the 1990s was holier than thou by saying they had learnt from their mistakes and understood everything, and everything was rosy in the economic environment. Well, let us look back at the economic environment when Labour put New Zealand in recession before the rest of the world. Just remember that: the rest of the world was still ticking along, there were some of the best economic times we have seen, and Labour managed to strangle this economy. It managed to put it in recession. Maybe it is time Labour members learnt the lessons from what they did wrong in the 1990s and the 2000s, because their economic management has been poor many a time, and that was shown in the way that they put this country into recession.

The other thing Labour did in its last period in Government was that it had high interest rates. Those interest rates were much higher than they are now. They were double-figure interest rates. Go to Kiwi families now and ask how much they are saving on interest rates under a National Government. They are saving a lot. A lot of money is being saved by Kiwis at this time because they know they have stable economic management, they know they have leadership that is delivering for them, and they know they have a Government that is looking after those in most need, the people of Christchurch, at this time. They know they have a Government that is also focused on growth. It is investing in infrastructure to lead this country forward. By having solid, stable economic management we have a Government that delivers lower interest rates for New Zealanders. That is the best thing we can do for our people: deliver them an economy that gives them low interest rates, that gives them an education, that gives them a chance to be the best people they can, and that gives them some reward when they do things properly, so that they get the right signals and incentives. That is the difference between National and Labour.

This Budget is a Budget in very difficult times. We have to deal with a world recession that is not over, although the Labour leader thought it was. It is a recession that is still going. He did not make the free-trade agreement with China, either—

STUART NASH (Labour) Link to this

I am pleased to take a first reading call on the Taxation (Annual Rates and Budget Measures) Bill. I think a couple of points need clarification. Amy Adams stood up and said that Michael Cullen was incompetent. Imagine saying that the man who delivered nine Budgets in surplus is incompetent. If Dr Cullen was so incompetent, why did this Government appoint him to the board of New Zealand Post and Kiwibank? It is a disgrace to say that Michael Cullen is incompetent. As Miss Adams knows, and as Mr Foss knows, the reason why this economy has done OK compared with a lot global economies is that Dr Cullen banked surplus after surplus and put money away for a rainy day. My goodness me, when it poured down during the global financial crisis, thank goodness Michael Cullen had had the foresight to understand how the New Zealand economy worked. That is the reason why Michael Cullen left this country with no sovereign debt.

Amy Adams also accused me of economic illiteracy. She should not accuse me of that. I think she needs to talk to the Minister of Revenue. Those were not my facts that were quoted yesterday. Those facts were provided by the Minister of Revenue. All I was doing was outlining to the people of New Zealand the facts that had been given to me.

AARON GILMORE (National) Link to this

It gives me enormous pleasure to stand and talk about the voodoo we just heard from the Opposition. We actually have a plan; it is called Budget 2011. The big difference between the Opposition and us is that we will spend $45 billion less than it would. We will spend it in a different, better, and cleverer way. What are people saying out there today, as a response to Mr English’s third Budget? The commentator in the New Zealand Herald, Audrey Young, gave the Budget six out of ten. That is not bad; I thought that was not bad. John Armstrong, the great Tory, gave us six out of ten. Fran O’Sullivan, whom the Opposition love to quote time and time again, gave us seven and a half out of ten. I think that is pretty good, given the economic times we are in.

This Budget, for me, puts in $8.8 billion to rebuild Christchurch. I hope most of that money will be spent on my side of town, in the eastern suburbs. A lot of the money will be spent on rebuilding our roads, rebuilding our water supplies, rebuilding our schools, and—this is important—rebuilding homes: the thousands of homes up and down parts of eastern Christchurch that are ruined, including my brother’s, my mother’s, and, in part, my own home.

Another interesting thing in this Budget is the focus on KiwiSaver. KiwiSaver will grow to $60 billion in ten years, due to the subsidies and input going through and the savings that will occur—$60 billion, which is a great thing. The incentives are still in place for people to save. People are saving. They are still joining up to KiwiSaver at a rate of 20,000 people a month. We heard from Mr Nash, who spoke just before me, the ironic idea that we need to invest more in crazy things. An interesting thing is that people are saving more. The whole purpose of the tax switch was to reduce consumption and increase savings. That is what we need to do. That is what the Taxation (Annual Rates and Budget Measures) Bill actually helps to encourage, and that is what the Budget does. The Budget puts in place an increased savings rate. Savings have gone up and debt servicing costs have come down. That has to be a good thing.

We heard from Mr Nash that 75 percent of New Zealanders earn below the average wage. Well, that figure includes kids and the retired. The last time that I saw Labour’s policy, it did not have a policy of sending children out to work, but maybe it does now, given that it has a turnover tax policy, as well.